Fitch Ratings – New York – 01 June 2015: Fitch Ratings has increased its 2015 US lodging industry RevPAR growth forecast to 7% from 6%, primarily reflecting the measure’s YTD performance and moderately higher assumed employment growth. Year-to-date US RevPAR growth of 7.5% through April on stronger occupancy gains exceeded our expectations.
The outlook remains excellent for lodging fundamentals through the balance of the year as Fitch expects GDP growth to accelerate to 3.1% in 2015. Interest rates are still at or near historically low levels, consumer confidence and labor markets are improving, and hotel supply growth (although accelerating) remains muted.
However, select indicators that have traditionally turned down ahead of industry RevPAR softened during the latest three months. Examples include the index of leading US economic indicators (LEI), TTM US hotel occupancy rates and hotel REIT share prices. Although it is premature to conclude the cycle has peaked, these metrics bear watching – particularly given the stage of this upcycle.
Cumulative TTM RevPAR is up 43% through April from its February 2010 trough. This is above the 38% cumulative trough-to-peak change in the recovery that began in the early 2000s cycle, but below the 49% increase during the longer duration upcycle that began in the early 1990s. Real ADR is still roughly 2% below its prior cycle peak, but the greater mix of lower priced select service rooms in the US challenges comparability and likely understates the “real” real ADR recovery.
Fitch views the Hotel REIT selloff as the most concerning of the three indicators. Hotel REIT share prices are down roughly 7.5% YTD and are trading below their six-month average, which has traditionally been a good, though imperfect, early indicator of industry downturns. However, shares of most REIT property sectors have fallen since early January on interest rate concerns and non-REIT hotel company shares are generally up YTD. Although the LEI and occupancies have decelerated, their absolute values remain solidly positive.
For more information on this topic, please see our U.S. Lodging Cycle Concierge, which is available on our website www.fitchratings.com